You have carefully planned for what is going to happen when you pass away. You have a life insurance policy in place to help your family members handle your final expenses. What if you found out that just a simple life insurance policy might not actually benefit your loved ones? This might very well be the case.
There is a chance that your loved ones could end up with more serious issues because of the life insurance policy than what they would have had without it. This is because there are often implications that come along with receiving a large windfall.
Some people might not be smart stewards with their money, even if they are normally very financially responsible. Other people might have issues handling the tax implication of the life insurance. Another issue is that creditors might be able to stake claim to the life insurance proceeds.
One way that you can help to protect your loved ones and the proceeds of the life insurance policy is to establish an irrevocable life insurance trust. This trust takes the proceeds of the life insurance policy out of your estate and puts it in the trust.
Once you establish the trust, you can spell out how the proceeds will be distributed. One thing that you have to understand is that this is an irrevocable trust, so you can't just pull the policy out of it.
Of course, this is only one component in an estate plan. You should review your entire plan, including the trusts you are utilizing, to ensure that it still meets your needs.
Source: FindLaw, "The Irrevocable Life Insurance Trust," accessed May 11, 2017